Activities of Three Member Funds of Mekong Capital.

There are not many opportunities yet. Therefore, if you invest, you have to be sure!” (Mr. Dominic Scriven, Director of Dragon Capital Fund). Therefore, in the period when the economy is stagnant and the real and virtual values are unclear, investment funds also have the option of accepting investment when the business owner also invests a certain amount of capital, thereby partly sharing the risk.

Mekong Enterprise Fund (MEF) is a typical example of venture capital in Vietnam today. The fund currently has a total capital of 200 million USD, established in April 2002. Mekong Capital is a company specializing in private equity investment in Vietnam, managing 3 funds focusing on Vietnam: Mekong Enterprise Fund, Ltd (2002); Mekong Enterprise Fund II, Ltd (2006) and Vietnam Azalea Fund Limited (2007). Mekong focuses mainly on areas such as consumer goods, industrial products, distribution and retail. [1]

Table 5: Activities of three member funds of Mekong Capital.

Criteria

Mekong Enterprise Fund	Mekong Enterprise Fund II	Vietnam Azaled Fund
Image awake	Private equity fund core	Private equity fund	Equity fund
Value	37 million USD	50 million USD	100 million USD
Customer target	Fast growing companies in Vietnam aim to support companies to grow at the fastest rate and help companies to list successfully on the stock market.	Companies that supply products to the domestic consumer market locations, such as branded consumer goods manufacturing, distribution and retail companies.	Unlisted equitized companies on the Vietnamese stock market, especially those in the early stages of privatization. Typically these investments are made in the form of private placements or auctions. Unlike the other two funds, Vietnam Azela Fund focuses on private companies without state capital
Performance results	The Fund made 10 investments during the period from 2003 to 2005. Since By the end of 2009, most of the Invested company expected to be listed	The Fund is expected to operate for 10 years from its launch date of June 2006. When making an investment, the Fund is expected to hold investment within 4-5 years.	The fund mainly invests in companies within 12 – 14 months before the expected listing date [1].

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on the market

stock.

Source: Mekong Capital Report and funds managed by Mekong Capital, June 1, 2008.

In general, Vietnamese SMEs are not qualified to receive medium and long-term venture capital, due to their low level of business organization and operation as well as the lack of long-term strategy in technological innovation, except for some enterprises operating in export or information technology. The small financial scale of SMEs leads to limited efficiency in accessing venture capital.

The current existence of our country's economy is that it has not yet formed a system of high-tech enterprises, at the same time, it lacks a legal system and policies to support the development of venture investment, along with a weak stock market and an unformed capital market... Therefore, the issue of forming and developing venture investment enterprises in our country in the immediate future does not have favorable conditions like in countries with stronger market factors (shown through the rate of equitization, privatization, development of the stock market...). In that context, more than ever, businesses need the support of the State in investing in technological innovation projects and initially forming high-tech enterprises to prepare to face the challenges of the integration process.

* Development Support Fund

The Export Support Fund was established under Decision No. 195/1999/QD-TTg dated September 27, 1999 of the Prime Minister. This fund is used for the following purposes: supporting bank interest rates to purchase agricultural products for export when world market prices decrease, which is not beneficial for domestic production; reserving agricultural products for export; providing limited-term financial support for some export products that suffer losses due to lack of competitiveness or objective risks; rewarding the search and expansion of export markets, newly produced products participating in export for the first time; exporting high-quality products with large export turnover and high efficiency... However, upon joining the WTO, many of the fund's original purposes are no longer suitable and must be adjusted.

The Development Support Fund was established, organized and operated under the Law on Domestic Investment Promotion and Decree No. 50/1999/ND-CP dated July 8, 1999 of the Government. The Fund aims to concentrate all state credit capital into one entity, gradually reduce government intervention in the operations of commercial banks, separate policy activities from banks and the service objects of the development support fund. The Government decided not to establish a separate export support fund but assigned the export credit task to the development support fund under Decision 133/QD-TTg dated September 10, 2001. The Fund has the function of mobilizing medium and long-term capital, receiving and managing state capital sources for development investment credit (including domestic and foreign capital) to implement the State's development investment support policy. The Fund operates under the Charter approved by the Prime Minister. The Development Support Fund operates not for profit, ensures capital recovery and cost compensation, has legal status, charter capital, balance sheet, seal, and is allowed to open accounts at the State Treasury and domestic and foreign banks. The fund's operations originate from charter capital from the state budget.

5,000 billion VND, the state budget capital supplemented annually to implement forms of state development investment credit; capital for projects and programs assigned by the Government; capital of the Vietnamese Government for foreign projects to borrow under the Agreement. In addition, there are capital sources from the development support fund mobilized such as capital from issuing government bonds; capital borrowed from domestic and foreign economic organizations; capital entrusted by domestic and foreign organizations; other mobilizations according to the provisions of law...

According to the WTO accession agreement, in September 2008, the Prime Minister decided to abolish the Development Support Fund, redirecting and adjusting current mechanisms and policies to promote export development in accordance with WTO commitments . Instead, the Ministry of Planning and Investment is drafting a draft decree proposing the establishment of the SME Development Fund (replacing Decree No. 90/2001/ND-CP dated November 23, 2001 of the Government) to finance programs to support the enhancement of competitiveness for SMEs. According to the draft, the SME Development Fund has the functions of mobilizing and receiving financial resources.

domestic; receiving, managing and using funding and aid sources to carry out activities to support the development of SMEs. In addition, the Fund provides funding for programs and projects to help improve competitiveness; entrusts credit institutions with preferential loans to SMEs with feasible investment projects in priority and encouraged areas of the State.

The Fund's capital comes partly from the state budget, in addition to contributions from domestic financial institutions; aid and sponsorship from foreign organizations, international organizations; from the Fund's activities and other legal sources of capital. In addition, the Ministry of Planning and Investment will also establish a Center for SME Development Promotion, under the Department of SME Development to act as a focal point for consulting and piloting support models for these enterprises. At the same time, through support programs, the Government implements policies to support SMEs in innovation, improving technological capacity and technical level; promoting market expansion; providing information, consulting, and training human resources. Thereby, we see that this is an effective support measure, a capital channel in accordance with international practices and regulations on protection and promotion of exports for SMEs.

Currently, the development fund in Vietnam has been transformed into the Vietnam Development Bank according to Decision 108/2006/QD-TTg dated May 19, 2006 of the Prime Minister to implement the development investment credit and credit policies of the State. The term of operation of the Vietnam Development Bank is 99 years. This is a 100% government-owned organization, with a charter capital of up to 5 trillion VND, operating non-profitably. The credit policy of the Development Bank includes development investment loans, post-investment support, investment credit guarantees, along with export credit policies such as export loans, bid guarantees, and export contract performance guarantees. Preferential loans with lower interest rates than other commercial banks, determined by the interest rate of 5-year government bonds + 5%/year. In some cases, it is calculated only by the interest rate of government bonds. In addition, the term that the Vietnam Development Bank lends to SMEs is long, from 12 to 15 years, helping businesses to borrow capital to be more proactive in their plans for re-production and investment expansion. In addition, businesses can use assets from the loan capital to secure the loan.

In case the assets formed from the loan capital are not qualified to secure the loan, the investor must use other legal assets to secure the loan with a value equal to 15% of the total loan amount.

Figure 2: Credit activities of Vietnam Development Bank

CREDIT ACTIVITIES OF VIETNAM DEVELOPMENT BANK

Year 2008

- Mobilizing domestic capital: 35,000 billion VND.

- Foreign currency mobilization: 100 million USD.

- Export loan turnover reached 25,300 billion VND, 3 times higher than the same period in 2007.

- Average outstanding debt reached 10,200 billion VND, 2.55 times higher than the plan assigned at the beginning of the year, equal to 136% of the adjusted plan, achieving credit safety, overdue debt only accounted for 1.8% of outstanding debt.

Report on the implementation of investment stimulus solutions as of April 23, 2009

- Disbursement of ODA re-lending capital reached 948 billion VND, reaching 10% of the plan, outstanding loans were 54,832 billion VND.

- Export credit disbursement reached 9,443 billion VND, outstanding debt was 15,328 billion VND.

- Post-investment support is 67 billion VND, the number of post-investment support grants is 494 billion VND.

The State's plan to deploy investment credit and export credit in 2009 is 45,780 billion VND, of which:

- ODA capital for re-lending 9,500 billion VND

- Domestic capital: 36,180 billion VND including:

+ Investment loans 25,870 billion VND

+ Average outstanding balance of export credit loans

10,000 billion VND

+ Investment credit guarantee and post-investment support of 310 billion VND.

Source: Export credit activity report 2008 - Planning Department, Vietnam Development Bank.

As an export support fund, the activities of the development support fund (currently the Vietnam Development Bank) have made positive contributions to export support activities for SMEs. From only providing medium and long-term loans to invest in State investment promotion projects, the Development Bank has moved to fully implementing export support tasks such as: short-term export support loans, post-investment interest rate support, credit guarantees... while diversifying the beneficiaries of incentives, especially SMEs. Through policy mechanisms through export credit activities, research and forecasting, advising the Government, removing mechanisms and procedures so that enterprises exporting goods on the regulated list can meet capital needs in time to maintain and increase export turnover, the Development Bank has promptly assisted SMEs with more resources to cope with the difficulties of the world economy as well as creating momentum for enterprises to go further in the export sector.

2.3.2.2. Financial and credit measures

* Bank credit.

The first and biggest difficulty for the SME sector is lack of capital. The scale of micro enterprises accounts for a large proportion and does not tend to decrease over time, even showing signs of increasing in some localities and fields. Up to 40% of enterprises said that lack of capital is the biggest limitation to the development of enterprises. Similarly, among the barriers when starting a project, lack of capital is also at the top for 23% of urban enterprises and 35% of rural enterprises [11]. In the current difficult global economic situation, the consequences of lack of capital are becoming more serious and are a burden for most manufacturing and exporting SMEs. Therefore, SMEs, especially SMEs in the fields of export production, agriculture and rural areas, are gradually becoming one of the subjects that banks focus on investing capital. According to reports from 6 State Commercial Banks, 31 Joint Stock Commercial Banks, 33 Foreign Bank Branches and Joint Venture Banks, by March 2009

The total number of enterprises still having credit relations with banks is 163,673 enterprises, accounting for over 50% of SMEs with a total business capital of 482,092 billion, accounting for 45.31% of the total operating capital of banks. Of which, the enterprise's own capital accounts for 36.25%, bank loans account for 45.31%, and the remaining capital accounts for 18.44%. The average equity capital of an enterprise as of July 31, 2008 was 1.33 billion VND; the average bank loan capital of an enterprise was 1.79 billion VND [21]. Through this, we can also see that bank credit loans are always the most sustainable and popular capital channel, having the greatest impact on SMEs. Especially at the present time, this is an effective tool, a financial support measure that is being applied by the Government to stimulate the economy, partly solve capital difficulties for businesses, improve competitiveness and promote the economy.

LOAN OUTSTANDING

Outstanding loans to SMEs by July 31, 2008 of commercial banks reached VND 299,472 billion (accounting for 27.3% of total outstanding loans to the economy), up 16.65% compared to December 31, 2007 and up 70.5% compared to December 31, 2006. Of which, short-term loans accounted for 73.05%; medium and long-term loans accounted for 26.95% [ 21 ]

Figure 3: Statistics on outstanding loans for SMEs in the first 7 months of 2008

CLASSIFICATION BY BANK GROUP: - State-owned commercial banks have outstanding debt of 170,481 billion VND, accounting for 56.98% - Joint stock commercial banks with outstanding loans reaching 120,936 billion VND, accounting for 40.42% of total outstanding loans in the industry - Joint venture banks and foreign bank branches achieved outstanding loans of VND 8,053 billion, accounting for 2.6%


		CLASSIFICATION BY ECONOMIC SECTOR - Agricultural sector accounts for 5.1%, - Industry and construction sector accounts for 38.51%, - Trade and service sector 56.39% of total outstanding debt.

Source: State Bank[21]

The table above shows the credit access situation of SMEs before the economic crisis spread globally. Most of the loans of SMEs stopped at short-term loans with a very limited quantity compared to the real needs of this business sector. The basic reason is that the transaction rate is concentrated in commercial banks - currency trading units based on profits from lending interest rates - only when enterprises have collateral (by the assets of the enterprise itself or the assets of the individual business owner), can they have the opportunity to access capital, while the biggest difficulty of SMEs is the lack of capital to improve potential and develop production and business. Along with the general trend of economic restructuring, the rate of access to preferential credit of the agricultural sector is also more limited than that of industry and services. However, compared to the characteristics of our country - an agricultural country and the proportion of agricultural products is quite high in the structure of export goods, this is also a limitation and difficulty for businesses in this field.

Figure 4: Statistics on bad debt loans to SMEs in the first 7 months of 2008

BAD DEBT RATIO

According to statistics, the bad debt ratio for SME loans of the whole system is 3.64% (absolute number is 10,886 billion VND), an increase of 1% compared to 2007 and a decrease of 0.19% compared to 2006. Of which, the debt with the possibility of losing capital is 4,064 billion VND, accounting for 37.3% of the total bad debt of credit institutions.

Specifically:

- The bad debt ratio of the State-owned commercial bank sector is 4.59%

- Joint stock commercial bank 2.44%

- Joint venture and foreign banks 1.45%.

Source: Author's own synthesis from statistics on bad debt loans to SMEs in the first 7 months of 2008 - State Bank[21]

According to the data reported by banks, among the SMEs that have credit relationships with the above commercial banks, 23% of them are operating effectively; 73.2% of SMEs are operating averagely and 3.8% of them are facing difficulties, of which 1.42% are at risk of losing capital. This shows that the reality is that SMEs have difficulty accessing capital but the use of that capital is not really effective.

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